Modeling the formation of expectations
Switbert Miczka

Providing guidance in decision making, expectations are a core element of

dynamic economic theory, public policy making, and corporate strategic

management. A review of literature from management science, psychology, and

sociology shows that different approaches to forming expectations can be

differentiated, ranging from the numerical extrapolation of a variable's

past behavior to complex causal reasoning processes. Different approaches

may lead to different expectations.


The system dynamics literature contains a number of models incorporating

expectation formation. Yet, the suggested structures focus on extrapolative

approaches. A comparison with the literature on expectations shows that this

is not sufficent, and that the development of alternative solutions is

necessary. The presentation gives an overview of the different ways of

expectation formation and outlines a set of modeling approaches

complementing the existing modeling practice.